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Stocks extend gains after manufacturing report

NEW YORK — The Standard & Poor's 500 index is four digits again.

The widely used stock market measure broke above 1,000 on Monday for the first time in nine months as reports on manufacturing, housing and banking sent investors more signals that the economy is gathering strength. The index is used as a benchmark for many mutual funds.

Indexes all rose more than 1 percent, including the Dow Jones industrial average, which climbed 115 points.

The market's July rally blew into August on the type of news that might have seemed unthinkable when stocks cratered to 12-year lows in early March. A report predicted U.S. manufacturing activity will grow next month, the government said construction spending rose in June and Ford Motor Co. said its sales rose last month for the first time in nearly two years.

"The market is beginning to smell economic recovery," said Howard Ward, portfolio manager of GAMCO Growth Fund. "It may be too early to declare victory, but we are well on our way."

The day's reports were the latest indications that the recession that began in December 2007 could be retreating. Hope of a recovery, based on better corporate earnings reports and economic data, propelled the Dow Jones industrial average 725 points in July to its best month in nearly seven years, restarting spring rally that had stalled in June.

On Monday, a report from the Institute for Supply Management, a trade group of purchasing executives, signaled U.S. manufacturing activity should grow next month for the first time since January 2008 as industrial companies restock shelves. Also, the Commerce Department said construction spending rose rather than fell in June as analysts had expected. The reports and rising commodity prices lifted energy and material stocks.

Ford said sales of light vehicles rose 1.6 percent in July. Other major automakers said sales showed signs of stability. Investors predicted that the government's popular cash for clunkers program would boost overall auto sales to their highest level of the year.

Stronger earnings reports from European banks drove buying of financial companies.

Even with promising economic signs, it's too soon to celebrate. Major indexes are still down 35 percent from their peak in October 2007. But investors' confidence — or, for some, fear of missing a rally that has pulled stocks up 14 percent in only 16 days — is keeping buyers in the market.

"It would take a lot to derail the emerging optimism," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.

According to preliminary calculations, the Dow rose 114.95, or 1.3 percent, to 9,286.56. The S&P 500 index rose 15.15, or 1.5 percent, to 1,002.63. It was the first finish above 1,000 since early November.

The Nasdaq composite index rose 30.11, or 1.5 percent, to 2,008.61, its first close above 2,000 since October.